GAGLIO PLEADS GUILTY IN PARALLEL CRIMINAL PROCEEDING

On March 2, 2005, the Securities and Exchange Commission filed a civil complaint in the United States District Court for the District of New Jersey charging Jack Gaglio, the operator and part owner of entities formerly engaged in business with Suprema Specialties, Inc. ("Suprema"), with violating the antifraud and other provisions of the federal securities laws in connection with his participation in a $700 million multi-year fraud orchestrated by Suprema's senior management. Prior to its delisting in early 2002, Suprema -- a Paterson, New Jersey-based cheese manufacturer -- was a public company whose securities traded on the NASDAQ National Market System. Gaglio settled the charges without admitting or denying the allegations in the Commission's complaint.

In its complaint, the Commission alleges that, from at least 1998 through February 2002, when Suprema filed for bankruptcy, Suprema engaged in "round-tripping" transactions that generated approximately $700 million in fictitious sales revenue, or approximately 60% of Suprema's total reported revenue of approximately $1.13 billion over the relevant time period. The complaint alleges that the "round-tripping" transactions were effectuated through "circles" of entities, each of which included Suprema, a third-party "customer," and a related "vendor." As the complaint alleges, the customer and vendor in each circle tended to have a common owner. The complaint alleges that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions. Participants allegedly received a kick-back or "commission" on each transaction, the funds for which were drawn on Suprema's line of credit, which increased as Suprema's accounts receivable grew. With rare exception, the complaint alleges, no goods were actually sold, purchased, or exchanged in these transactions.

The Commission further alleges that Gaglio participated in the fraudulent scheme as an operator and part owner of entities that engaged as "customers" or "vendors" in round-tripping transactions with Suprema. The complaint alleges that these entities, most of which are now defunct, included A&J Cheese Company, Noble J.G. Cheese, LLC, California Goldfield Cheese Trading, LLC, and Wall Street Cheese, LLC as Suprema "customers," and other entities, including Whitehall Specialties, Inc., as Suprema "vendors." For their participation in the scheme, the complaint alleges that the participating entities received payments of one to two cents per pound of cheese purportedly sold.

In furtherance of the scheme, Gaglio, through his entities, also allegedly shipped sizeable quantities of artificial cheese to Suprema at fiscal year end which Suprema then relabeled as higher priced cheese products which the company used to support inflated inventory figures on Suprema's books and records during the year-end audit by Suprema's external auditors. Gaglio also allegedly signed false audit confirmations that were provided to Suprema's independent auditors.

The complaint further alleges that of Suprema's $1.13 billion in reported revenue during the period 1998 through the first quarter of 2002, approximately $359 million, or 32%, was attributable to the fictitious transactions with Gaglio. The complaint alleges that Suprema's fictitious transactions with Gaglio accounted for approximately 10%, 23%, 34%, 38%, and 38% of the revenue reported by Suprema in its filings with the Commission for the fiscal years 1998, 1999, 2000, 2001, and the first quarter of 2002, respectively.

Based on these allegations, the Commission charged Gaglio with: (i) securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5; (ii) aiding and abetting Suprema's violations of the periodic reporting, books and records, and internal accounting controls provisions of Exchange Act Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and (iii) aiding and abetting misrepresentations by Suprema's officers and directors to the company's accountants in violation of Exchange Act Rule 13b2-2.

Without admitting or denying the allegations of the Commission's complaint, Gaglio consented to entry of a final judgment that would: (i) permanently enjoin him from future violations of the provisions of the federal securities laws charged in the complaint; (ii) permanently bar him from serving as an officer or director of a public company; and (iii) defer the imposition of any disgorgement, interest, or civil penalties until decided by the Court, upon motion by the Commission at a later date.

Previously, in January 2004, the Commission filed securities fraud and related charges against the former controller, former operations manager, and several former customers and vendors of Suprema in federal district court for the District of New Jersey for their participation in the financial fraud at Suprema. See Securities and Exchange Commission v. Robert Quattrone, et al., Civil Action No. 04-33(SRC) (D.N.J.) (Lit. Rel. No. 18534 (January 7, 2004)). All of the defendants to that action have settled with the Commission.

Also today, in a related proceeding, the United States Attorney for the District of New Jersey filed criminal charges against Gaglio. At a plea hearing in the U.S. District Court for the District of New Jersey held earlier today, Gaglio plead guilty to one count of securities fraud and one count of conspiracy to commit securities fraud, mail fraud, and bank fraud, and to make false statements to auditors. (U.S. v. Jack Gaglio, 05-CR-141 (SRC) (D.N.J.)).

The Commission acknowledges the assistance of the United States Attorney's Office for the District of New Jersey, the Newark Office of the Federal Bureau of Investigation, and the Office of Criminal Investigations of the U.S. Food and Drug Administration in Jersey City in its investigation, which is continuing.